The situation
Among 10,000 borrowers, 2% default. The model flags 75% of defaulters and 10% of other borrowers.
Your task
What fraction of flagged borrowers defaults?
Reveal step-by-step solution
Set up the problem
There are 200 defaulters and 9,800 other borrowers.
Work through the numbers
True alerts = 200 × 75% = 150. False alerts = 9,800 × 10% = 980. Total alerts = 1,130.
Interpret the result
Default probability given a flag is 150 ÷ 1,130 ≈ 13.3%. Use the flag to prioritize review.
What to remember
Build a natural-frequency table and put every flagged borrower in the denominator.